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December 17, 1984, Vol. 02, No. 25

Easier Fed, lower bonds

Bond traders cheered the surprise $7.1 billion money-supply drop last Thursday night -- but only with their voices.

Zero

Recent sale by Fannie Mae, the Federal National Mortgage Association, of $6,750,000,000 worth of 35-year, zero-coupon bonds has prompted a question. On the telephone the other day, a trader wondered, "Now where is Fannie Mae going to get $6 billion to pay those things off?"

Junk flash

Ever since Carl C. Icahn, the company collector, bought control of ACF Industries last summer, the old American Garand Foundry Co. has been shedding assets, borrowing money, plotting new takeovers and generally retooling itself for a role in the modern financial services industry.

Bearish charts

When 1,250 people, including professional investors, the New York financial press and a Brazilian television reporter, turned out last week to hear Henry Kaufman talk about 1985, they came for the fundamental forecast.

Regan is right

So much has changed since the original Federal Reserve Act of 1913 that the Regan proposal for monetary reform has sounded new.

Houses, metals

That the first shall be last and the last shall be first is a Biblical injunction to invest by. When inflation was booming, the things to own were metals and real estate...

December 3, 1984, Vol. 02, No. 24

Sell bonds

Two weeks ago, under the headline "Good night, Ladies?", it was suggested that the time had come to distance oneself from the growing ranks of bond-market optimists. With this issue, Grant's, which has been bullish since July 16, turns bearish.

Money's morale

Announcement of the pulling of the plug on Western Union Corp. was buried in the financial pages Thanksgiving morning by the more seasonally palatable news of the half-point reduction in the discount rate. Too bad...

Boom of '85?

The Treasury-bond market would like a recession for Christmas. Will it be so lucky (and the rest of humanity so unlucky)?

Golden silence

When the Committee for Monetary Research and Education, a hard-money organization, met in New York a fortnight ago to discuss the investment outlook, nobody thought to mention gold except for the program moderator, who noted in passing at the end of the evening that the subject hadn't been raised.

Time opines

A now classic bit of investment lore is the Time magazine investment jinx. Let The Weekly Newsmagazine put a financial subject on its cover, the theory has it, and something contrary is going to happen.

Integrated in adversity

Whether the Treasury's tax-reform scheme will get off the ground is anybody's guess, but the plunge last week in the shares...

Inflation play

One of inflation's unmistakable social symptoms is gambling fever. In the past, as the value of money has declined, so the urge to bet has increased...

Dollar short squeeze

William H. Tehan, investor and broker with P.R. Herzig & Co., has a stock-market-inspired theory about the strength of the dollar.

Junk supreme

The idea that an issuer of bonds should actually be able to meet its interest and principal payments is a notion so puritanical that sooner or later it was bound to be junked.

Junk encore

Turner Broadcasting System, Inc., another television company in search of cash, recently filed a $125 million debt-stock-warrant deal. Here, too, the prospectus provides some suspenseful reading...

November 19, 1984, Vol. 02, No. 23

Good night, ladies?

Suddenly the bullish case for bonds is blindingly clear. The Street expects easier money and a cut in the discount rate -- even Henry Kaufman predicts bullish things from the Fed.

Voluntary reschedulings

One key difference is obvious between the credit standings of Washington and Buenos Aires. It's that Argentina, lacking new lenders to refinance its old debts, must deal with the bankers it has. It must wiggle its way out of the debts it can't pay by pushing them out into the future. Result: forced reschedulings.

More debt

Inspiration for the accompanying dramatic graph was a telephone call. John Davenport, the financial writer and editor, had a question about the size and significance of the country's debts, both public and private.

Monetary mysteries

Exactly one year ago, M-1 was weak, and monetarists were predicting a recession. Then came the famous upward revision of M-1; then followed the celebrated upward revision of the monetarists' forecasts.

Cause and effect

When the bull market took a rest the other day, quotable observers were quick to blame the Fed. The apparent sense of the market's spokespeople was that bond prices had rallied last summer because the Fed was easy and that they had faltered last week because the Fed was tight.

Junk in suspense

If (as everybody on Wall Street thinks) a business slowdown is bullish for Treasury bonds, it plainly isn't bullish for junk bonds.

November 5, 1984, Vol. 02, No. 22

The action to come

All on the afternoon of Thursday, Nov. 1, the Treasury-bill rate dropped through the 9% barrier and the long-dated Treasury bond rallied through 11-1/2%.

Dogs and Cat

Either the business expansion, just now winding up its second year, will continue, or it won't. Either the summertime pause in business activity is an omen of the next recession, or it isn't.

Short case study

Asarco, one of the aforementioned 286 industrials, is an interesting specimen.

Yield curve briefing

From May to September, the difference between the 90-day Treasury bill rate and the 30-year bond yield was sawed in half, to 150 basis points from 300 basis points. The trend provoked a question...

Chartists three

When bond market fundamentals looked their worst last spring ... Now that the rally has ripened, three of them were asked: What next?

Remember M-1 A?

M-1, the narrowly defined money supply, has been weak, but the bare bones money supply -- the aggregate once known as M-1A -- has been even weaker.

Hoisington rallies

"I'll always be at the top or bottom," said Van R. Hoisington, the Houston bond investor, last week, noting that he's probably close to the top of the investment-management pile again. Last spring, at the bottom of the market, he was virtually dead last.

Another voice in the choir

Another voice in the choir (Reprinted from the first issue of Grant's, November 7, 1983.) In a more perfect world, this magazine would not have been born...

October 22, 1984, Vol. 02, No. 21

Upside breakout

Proving once again that, of all the bear arguments, "supply" is the least profitable, the bond market soared last week.

Beyond oil

The Federal Reserve is a little easier than it was last summer. Business activity has softened and money-market rates have fallen...

Captured document

The Office of Examinations and Supervision of the Federal Home Loan Bank Board, concerned about the proliferation of junk bonds in savings and loan portfolios (Grant's, September 24), has issued a cautionary memo to examiners.

Bleeding Cat

News that Caterpillar Tractor Co., one of the Street's premier inflation plays, lost 31% more in the third quarter than it had in the year-ago period and that, as the Journal reported, "Further massive cuts are likely to be necessary if [the company] is to post a profit next year," raises some interesting questions...

Follow that trend

Now that so many economists are bearish on the bond market for what may seem incontrovertible, common-sense reasons, it's notable that a fair consensus of market technicians is bullish for what may seem contrived or baffling reasons.

Max

The New York Post, fourth-largest daily newspaper in the United States and American flagship of Rupert Murdoch, the Australian publishing magnate, is a tabloid's tabloid. Its strongest editorial suit is sports, and its front page blares the kind of headline that makes a quick impression on bustling Manhattan commuters ("Subway Rider's Throat Slashed").

October 8, 1984, Vol. 02, No. 20

Business Week jinx

Publication by Business Week of the cover story called "Super Dollar" naturally has caused anxieties that the dollar is about to crash.

For good news

The idea that, so far as the bond market goes, good news is bad and bad news is good, is one of the things that everybody on Wall Street seems to know.

Sovereign Baa

International Business Machines, one of the few surviving triple-A corporate credits, issued a long-dated 9-3/8% bond five years ago, during the storms of October 1979.

Gold mines

The nearby chart describes a market anomaly. In relative terms, the gold price is down, but the stock-market prices of the low-cost producers of gold are up.

ARPS Again

Times change, psychology changes. Back in June, the bid side of the market in adjustable rate preferred stock (ARPS) was out to lunch. The Continental Illinois crisis, which broke in mid-May, continued to rock the bank preferreds, and the bond-market rally had only begun...

September 24, 1984, Vol. 02, No. 19

Bank stocks rally

The bond market, presented for the past two weeks with the things that its self-appointed spokesmen had declared it wanted -- a slowdown in the economic expansion, more Federal Reserve credit and lower short-term interest rates -- has decided, perhaps, that what it would like is something else.

Junk debunked

In the bond market, this is a day of high hopes and low interest-coverage ratios. It is a day of the near extinction of the triple-A corporate credit and the rise to investment respectability of the sub-Baa credit...

Junk thrift

Columbia Savings & Loan of Beverly Hills, California, is no ordinary maker of mortgage loans. With some $1.2 billion of corporate bonds on hand, most of them low-rated, or non-rated, it is (as it calls itself) a "financial investment institution" -- a junk thrift.

Junk club

Last June, Integrated Resources, Inc., the tax-shelter company, bought 9.9% of the common stock of Columbia Savings & Loan, the junk thrift. At about the same time, Columbia, through a subsidiary, owned 4.5% of Integrated's adjustable-rate preferred...

Junk hospitals

Does anyone own a tax-exempt hospital revenue bond? Is anyone enticed by the 11% yield on the typical A-rated hospital issue? If the answer is yes, then Prescott Ball & Turben, brokers in Cleveland and New York, have some news.

High-grade Treasuries

"New York -- DJ -- Treasury Secretary Donald Regan declined to say whether the Treasury would include a call provision in its next 20-year bond issue. . . . 'The idea behind the call is to put our money where our mouth is,' Regan said. 'We think that interest rates are coming down.'" •

September 10, 1984, Vol. 02, No. 18

The Federal Reserve buys, sells and buys

As this publication packed up for the beach in the middle of August, the bond market was strong and the money market was weak. The Federal Reserve was relatively tight, and the rate of expansion of the economy had evidently begun to slow. The gold price was down, and there was some talk of deflation. A month later, the bond market is stationary (following Thursday's rally...

Wizard of Oz

Monetary policy nowadays is not exactly a bull argument. The Federal Reserve, which was supposed to be paving the streets with gold in order to re-elect the President, is tight. The Federal funds rate is unexpectedly high...

What does he say when he lets his hair down?

Rudolph G. Penner, Director of the Congressional Budget Office, obliging U.S. News & World Report with some speculation on what could happen if the Federal debt continues to expand at current rates...

Hot hand

According to Elliott Wave theory, it's no accident that the shell of a snail should take the form of a logarithmic spiral or that the financial markets should rise and fall in a series of eight rhythmic waves.

Decimation

The proposed acquisition of Carnation Co. by Nestle S.A. marks a further thinning of the ranks of top-rated bond issuers and the passing from the investment scene (as a separate entity) of a beautiful balance sheet.

Yield curve decay

One of the worrisome developments of the past few weeks has been the continued flattening of the Treasury yield curve.

S&L curve

If there's a moral in the fall from grace of Financial Corp. of America and its vast, news-making subsidiary, American Savings & Loan, it may be the saw that bigger isn't necessarily better.

Crop-moving season

Speaking (as we were a while back) of the origins of the Federal Reserve, autumn is the season that stirred the legislative architects of the System to action.

August 13, 1984, Vol. 02, No. 17

Short rates weaken

The bond market, doing the most bullish thing a market can do, went up again last week, and Treasury-bill yields, which had been rising, declined on Wednesday and Thursday.

"They"

"They" used to be men like Morgan, Ryan and Keene, and you could see them coming and going on Wall Street or eating lunch at Delmonico's.... In 1984, "they" are mostly bureaucracies -- the Fed, the International Monetary Fund, the Federal Deposit Insurance Corp.

. . .and certain insolvencies

Both Moody's and Standard & Poor's are worried about the property-casualty insurance business, and both are preparing important, and presumably negative, studies on it.

Paging inflation

"Timmins, a Northern Ontario city built and still largely based on gold mining, is asking the federal government to establish a floor price for the precious metal..."

Foreign capital magnet

In mid-June, just as the American bond-market rally was getting off the ground, an issue of six-year Japanese government notes was quoted at a price to yield 7.09%...

Inflation alert

An unrepentant inflationist provided the graph on this page, which traces commodity prices not only in everyday, U.S. terms (broken line), but also in dollar-adjusted terms (solid line).

Integrated Resources

Two years out of Yale, in the summer of 1982, James S. Chanos began to make a name for himself by predicting the decline and fall of Baldwin-United Corp....

July 30, 1984, Vol. 02, No. 16

Bull market serenade

As expected (or, as the case may be, not expected), bond prices climbed last week. Long-dated Treasury issues spurted, but so did the notes and bonds of the punch-drunk Continental Illinois Corporation, which rallied to the announcement of a government bail-out scheme...

Deflation script

If this is deflation -- The New York Times, giving the question the front-page treatment last Monday, quoted Alan Greenspan to the effect that it isn't because central banks wouldn't allow it -- then it's deflation with a twist.

Yield curve decay

The brick wall of type on the next page describes the difference in yield between various strategic points in the Treasury maturity spectrum.... The news in the numbers is that, in the past few weeks (check the bottom of the page), the 30-year vs. 10-year spread and the 30-year vs. five-year spread have turned negative.

Bank briefs

The adjustable-rate preferred shares of banks like Manufacturers Hanover, which mounted a comeback two weeks ago, continue to languish, the bond rally notwithstanding.

July 16, 1984, Vol. 02, No. 15

Buy bonds

Grant's is bullish on bonds. The words don't come easily: As an editorial policy, we've avoided prophecy, and as a matter of record for the past 40 years, interest rates have gone up, not down. However, this is an epochal moment in finance, a time for choosing sides. Grant's will cast its lot with the bulls.

Euro-standoff

"For a major money center bank holding company, liquidity is primarily the ability of the Corporation and its subsidiaries to have continuous access to worldwide money markets in which to place deposits, debt and other liabilities." -- Manufacturers Hanover Corporation First Quarter Report.

Argentine shrink

The long delayed year-end statement of the largest commercial bank in Argentina, has the debt crisis written all over it. In local terms, the bank expanded in 1983; in dollar terms it drastically contracted.

Commodity cloud

The current deflationary action in the commodity futures markets follows a year and a half of the lustiest expansion of Federal Reserve credit in postwar annals.

Bullish

A glance at an interest-rate scare headline on the front page of The Wall Street Journal last week called to mind Gert von der Linde, of all people...

Bearish

The inflationary view of things, which for so has long ruled bond buyers, has recently lost almost as much ground in the intellectual marketplace as lumber has on the Chicago Mercantile Exchange.

Euro-paradox

[T]he expected pick-up in the overseas demand for U.S. government securities hasn't materialized.

Letters of credit again

So numerous and compelling are the tangible reasons not to buy bank stocks that it hardly seems necessary to dig up a new and intangible one. Nonetheless, we've discovered just such a bearish argument.

Is it a bank?

Exactly 10 years ago this week, the prickly chairman of the House Banking and Currency Committee, Wright Patman (D., Tex.), wrangled with Citicorp, parent of what was still called First National City Bank, over an issue of floating-rate, redeemable notes.

July 2, 1984, Vol. 02, No. 14

Reversion to form

No sooner did the Treasury's long bond poke its head above par than it was beaten back down again. The worst such drubbing came on the morning of the second-quarter GNP report a couple of weeks ago...

One bank

The Grant's World Bank Audit Index, sequel to the Grant's domestic Bank Audit Index, makes its debut in this issue.

The rout in ARPS

Except for the unlucky corporate treasurers who own the shares, almost nobody has paid attention to the distress in adjustable-rate preferred stock.

Happy downside

Last fall, William M. McGarr, founder and president of The McGarr Fund, decided that things would be different in the stock market this time around.... Having made up his mind, he acted. He sold short the shares of capital-goods companies, farm equipment makers and commodity producers.

Yield-curve peril

The operative reason for the stockmarket plunge of Financial Corp. of America, the huge, headline-prone savings and loan holding company in Los Angeles, will be revealed, as usual, too late. However, one factor -- perhaps the financial factor... has been the subtler decline in the slope of the yield curve.

Confidence

Banco de la Nacion de Argentina, the largest commercial bank in Argentina, hasn't filed its 1983 annual in this country yet, but on December 31, 1982, it was into the Argentine central bank for the equivalent of $1 billion...

Fed Watching

A reader from the upper East Side of Manhattan has asked for a simple lesson in Fed watching. Without making a career of it, he says, he would like to be able to decipher the weekly banking statistics...

June 18, 1984, Vol. 02, No. 13

Now, they tighten

Last Thursday, Flag Day, the United States Treasury's current long-dated bond, the 13-1/4s of 2014, patriotically pushed above par...

Timing artist

A fraternal article of faith among the people who try to forecast interest rates for a living is that nobody can hope to succeed at their job consistently. Saying this, the forecasters don't mean to disparage laymen. They mean that the experts can't do it, either....

What inflation?

The lift-off of the Leading Index of Inflation is hard to reconcile with almost anything else on the financial pages. The prices of gold, copper and lumber are depressed, and the year-over-year gain in average hourly earnings last month was a meager 3.2%.

Inside favorites

Even as big-city bank stocks got marked down like plaid suits at Syms -- cheaper by the week and no takers -- insiders have been buying some of the thrifts and regional banks.

Bids wanted

Even more notable than the recent slump in the prices of adjustable rate preferred shares has been the continuing loss of liquidity in that market.

Careers in central banking

While serving as Secretary of the Bank of England at the turn of the century, Kenneth Grahame managed to find the time to write the novels The Golden Age and Dream Days.

June 4, 1984, Vol. 02, No. 12

Sell and repent

On the morning of Thursday, May 31, the rain stopped in New York City. The tape carried news of a pause in business activity, and the House Subcommittee on Domestic Monetary policy, temporarily convened over on Maiden Lane, heard evidence concerning the allegedly wobbly financial condition of the government securities industry.

The trouble with banks

If big-city banks had done nothing worse than to make fools of themselves in South America, then now might be the time to buy bank stocks.... Grant's, however, which was bearish on money-center banking before the Continental Illinois affair, will remain bearish now.

Tax bulletin

A United States District judge in Chicago has dealt a blow to the ancient connection between death and taxes. The judge's ruling, which came down on April 25, holds that U.S. project notes are exempt from Federal estate tax.

Balance-sheet shocker

The Federal Reserve balance sheet for the week ended May 23 (the week between the Continental Illinois run and the dustup in Manufacturers Hanover common) raises some troubling questions about what the Fed knows, what it believes and what it can be expected to do in the future.

If he was always this good, why is the long bond pushing 14% ?

[E]xcerpts from the citation accompanying the Doctor of Laws degree, honoris causa, presented last month to Paul A. Volcker by Columbia University...

Advantage: bonds

The "yield gap" between stocks and bonds is the Grand Canyon of the investment landscape. It's undeniably there, but not everyone knows what to make of it.

May 21, 1984, Vol. 02, No. 11

Distress

There was a stench of brimstone in the market last week. While the nation's eighth largest bank all but came a cropper for a lack of liquidity, bond yields rose, evidently on the fear that there was, or would soon be, too much liquidity.

Other people's credit

"Other people's money" used to be a reformer's slogan: Louis D. Brandeis, writing just before the First World War, popularized it in a series of articles in Harper's Weekly deploring the alleged concentration of banking power.

Promises, promises

In the midst of the troubles of the Continental Illinois National Bank & Trust Company the other day, the Chicago Board of Trade Clearing Corp. moved to withdraw some $45 million that it had on deposit at that beleaguered institution. Then, on second thought, The Wall Street Journal reported, it decided to put the money, or some of it, back again.

Bank index slips

[Recent] events have taken their toll on the Grant's Bank Audit Index. As regular readers know, the index is a composite of two forward-looking indicators, one in the stock market, the other in the money market.

Odd couple

Barring Paul Volcker himself, no more illustrious rescuer was available to Continental Illinois than the chairman of J.P. Morgan & Co...

Central Bank of the Month

Belize, population 160,000, operates its bank with an admirable minimum of bureaucratic overhead. Formerly British Honduras, Belize became independent in 1981. •

Savings bank bulls

Who would buy a bank stock? Some smart money has taken a bite of the Boston Five Cents Savings Bank. The thrift went public last November at $12.75 a share, and this past week was trading two bits cheaper...

Treasury blight

A cloud hangs over the Treasury's finances. Despite the flight to quality in the money market, the spread between high-grade industrial issues and governments is narrow, and the spread between U.S. Treasuries and the bonds of other nations is wide...

Low Finance

Multivest Securities, municipal-bond brokers to the people, is in liquidation, but the slogan on the bulletin board in its empty office at the foot of Broadway is inspirational: "Tough Times Don't Last -- Tough People Do!"

May 7, 1984, Vol. 02, No. 10

Yields forge higher

Not quite everything went wrong in the bond market -- Montgomery Ward Credit Corp., after a three-year exile, successfully returned last week -- but it was almost as bad as that.

Promises

Wanderers in the footnotes of the annual reports of big-city banks may have noticed an austerely headed item way in the back, "Commitments and contingent liabilities."

Gaps

Markets are full of divergences. There's a gap (a record, by some calculations) between stock and bond yields. There's a gap between the unprecedented United States trade deficit and the international value of the dollar, and there's a gap between the price of gold and the prices of gold mining shares.

Every man a king dept.

"Turn your house, condo or co-op into a liquid asset. The Equity Source Account from Citibank is truly unique..."

Trading system

An ingenious bond-trading theory was conceived here a week ago, tested last Monday and found absolutely baseless on Tuesday.

Sell Euros

When the phone rang last Thursday morning, it was Gilman C. Gunn III, the cosmopolitan bond man. Gunn, who has managed money in New York and Kuwait (he packed up after the terrorist explosion a few months ago), and who now works for Paribas Becker in London, had an idea for international investors...

Monkey Ward

Montgomery Ward Credit Corp., one of the great faded names of the debt markets, was back again last week with $100 million in five-year notes.

April 23, 1984, Vol. 02, No. 09

The next rally explained

In a rumor-ridden week, The Wall Street Journal performed the service of reporting a major speculative event. The news was that David B. Bostian, the uptown money manager, actually addressed a personal appeal to Paul Volcker to buy bonds.

Downgrade

Not to give in to the gloom of the moment, but is the United States Government a triple-A credit, or isn't it?

Spread trader

Down in Richmond, a man who used to work in a bank begins his days by turning to the commodities page of The Wall Street Journal. His eyes fix on the GNMA contracts for September delivery. There are two contracts, an old and new one, and he keeps vigil over both.

Silver lining

The recent rise in the Federal funds rate coupled with the recent fall in a host of commodity prices has inspired a new silver-lining theory of inflation.

Monetary pressure

The Cape Canaveral trajectory of our Index of Monetary Pressure on page 10 perhaps deserves a word of explanation...

Onward and upward

In the disinflationary year of 1983, the presidents of the twelve regional Federal Reserve banks enjoyed a 15% raise in pay, and for the first time in the central bank's history, each president drew $100,000 or more.

Amber

Excerpts from the press release that accompanied the March update of the "Leading Index of Employment"...

April 9, 1984, Vol. 02, No. 08

All but the discount rate

Two weeks ago, the interest-rate news was so bleak and the case against bonds was so logically inexorable that it seemed that things could only get better. Instead they got worse.

Train wreck

In keeping with the age, Grant's with this issue unveils a new index of banking distress. The index is a composite of two forward-looking indicators, one in the stock market, the other in the money market.

Debt happy

The nearby graphs, kindly furnished by Nancy Lazar, economist at Cyrus J. Lawrence Inc., make two points, one familiar and the other new.

More Reveille for Inflation

Prices and interest rates are poised to move higher Early last December -- aeons ago, in financial time -- a fashionable Wall Street view was that the reported slowdown in monetary growth had already jeopardized the economic expansion.

Letters

"Sir: Your March 12 article on "Preferred-stock funds" appears to overlook one point that is essential to any discussion of yield: the concept of total return..."

Contrary opinion

Last week, the Market Vane survey was neither bullish nor bearish, but the ratio of put to call transactions in the financial futures market did flash (according to George Gilman) "oversold."

March 26, 1984, Vol. 02, No. 07

Terrible news smiles

All in the same week, the prime rate went up, money-market rates climbed and bond prices fell. The money supply rose, the volume of commercial paper increased and the Commerce Department divulged that the gross national product is, or may be, growing at the steamy annual rate of 7.2%.

Grant's dollar

One of the things that everybody knows is that the international value of the dollar is still worrisomely high. People know that, and it encourages them when they consider the prospects for American inflation and interest rates.

North American bear

Despite the rout in the U.S. and Canadian bond markets over the past six or seven weeks, a number of other countries have enjoyed stable or even falling interest rates.

Annals of disinflation

The Leading Index of Inflation, which had been faltering, resumed its climb in February, a bad sign for prices.

Tall short rates

Amazing fact of the week: According to Nancy Lazar, economist at Cyrus J. Lawrence Inc., the latest annualized rate of growth in the volume of commercial paper and bank loans to business comes to 31%, no less. As recently as last December, the rate was slightly less than 1%.

Words not deeds

By the looks of things, March will mark the 13th consecutive month of double-digit growth in the number that perhaps best describes Federal Reserve policy.

Let them speak

The numbers preceding the following statements correspond to the numbered points on the nearby graph. Thus, the announced intentions of Federal Reserve officials can be compared with the actual policy results...

Archer-Daniels-Midland

The filing last week by Archer-Daniels-Midland, the soybean, corn refining and flour milling company, of a shelf registration covering $200 million worth of debt securities, stirred grudges and memories among bond buyers.

Grant's dollar again

The surge in short-term interest rates raises the specter of a flattening of the yield curve, which is jargon for a narrowing in the difference between money-market rates and bond rates.

March 12, 1984, Vol. 02, No. 06

Rates rise, bonds sink

The British base lending rate dropped last week, but that was the exception in the English-speaking world. On Tuesday, the Australian prime jumped to 13-1/2% from 12-1/2%, and on Thursday, there was talk of a boost in the Canadian prime rate, now 11%. In the United States, Monday through Thursday, interest rates of all kinds went into orbit.

Excruciating

Irving Kristol, the cosmic commentator, says that the Fed is tight, and Alan Reynolds, the supply-side economist, says that the Fed is "excruciatingly tight."

Telephone bonds

Northwestern Bell Telephone Company filed a $150 million, 40-year debenture offering last week, thereby becoming the first Bell operating subsidiary to register a debt securities issue since the A.T.&T. divestiture.

Preferred-stock funds

Despite the rise in corporate borrowing recently, there's been a simultaneous boomlet in mutual funds that cater to companies with cash to lend. The funds buy "ARPS," or adjustable-rate preferred stock, and they pay handsome aftertax dividends.

Blame it on Rio

The rocket-ship trajectory of the Brazilian monetary base causes a deep-rooted but nonspecific malaise.

18-year whammy

Next year will be a banner year for cycle theorists and cycle watchers. Not only is the 54-year Kondratieff wave scheduled to hit its trough, and the 6-year gold cycle expected to approach its peak in 1985, but the less well-known 18-year devaluation cycle will also reach its critical stage during that year...

Ides of March 1968

Robert Solomon, a Federal Reserve official who played an important role in world monetary affairs in the Sixties and Seventies, looks back (in his book The International Monetary System: 1945-1981) on the March 1968 decision to establish a "two-tier" gold price...

February 24, 1984, Vol. 02, No. 05

Whiff of inflation

Interest rates went up but the dollar went down. Gold went up. The stock market went down but the business news was strong. Confusion was as rampant as capital losses.

Canelo's system

In this space last issue some ideas were propounded. (A profitable idea is propounded; a money-losing scheme is hatched.) The first idea was that the Federal Reserve has been manipulating the Federal funds rate...

Inside the yield curve

William F. Rickenbacker, the investment adviser, has a question. He points out that almost everybody believes that short-term interest rates should be lower than long-term rates... Why, then, he asks, were short rates usually higher than long rates in the days of the gold standard, when interest rates of all kinds were lower and steadier than they are today and when inflation was the exception rather than the rule? Why, indeed?

Yield chauvinism

With the exception of the yields in France, the yields on United States Treasury securities are the highest government yields in the civilized world.

Stubborn converts

Steven S. Anreder, former Barron's columnist, now editor of the indispensable Convertible Letter, reflects on the resilience of convertibles in the recent stock-market rout...

Great moments in bank regulation (a series)

Through an order approved by the Federal Reserve Bank of Minneapolis on October 21, 1983, the Jackass Creek Land and Livestock Co., of Ennis, Montana, acquired the First Madison Valley Bank, also of Ennis.

Bond briefs

Consumers Power, a battered nuke, sells 10-year, nonredeemable first mortgage bonds to yield 15-1/8%...

Reserve requirements fall

So much ink has been spilled over "contemporaneous reserve requirements" that the recent gradual lowering in the level of bank reserve requirements -- a reduction, in one important case, to the lowest level since 1863 -- has gone virtually unnoticed.

February 13, 1984, Vol. 02, No. 04

Credit demands rise

Briefly last week it wasn't a question of whether budget deficits mattered, but of whether anything else did.

Instability

When people think of the "monetization" of the Treasury debt -- literally, the transformation of bills, notes and bonds into money -- they think of the Fed and of the maneuver called open market operations. However, a bank is a bank...

15% utility bonds

On the morning after the statement by the new chairman of Lilco, William J. Catacosinos, that the besieged utility might reduce or omit the common dividend and may or may not be able to turn on the juice at its Shoreham nuclear plant, the telephone in Eunice Reich's office didn't ring...

Either oil prices are going up, or they aren't.

James B. Rogers, Jr., a New York investor and speculator, says that they aren't, but the board of directors of Texaco Inc. seems to think that they are.

Coast capital

Hands down, the most complex preferred-stock deal of the season is a $300 million issue by Coast Capital Corporation, the sale of which was postponed until the Internal Revenue Service can render a tax ruling.

February springboard

The recent decline in bond prices has inspired some original research into seasonal trading patterns. The researcher, George Gilman, a speculator who lives in Berkeley, Cal., was inspired by his own bond position, which is long and therefore irksome...

Paul A. Volcker speaks

Some excerpts from last week's Monetary Policy Report to Congress...

January 30, 1984, Vol. 02, No. 03

Credit rises, rates slumber

The money supply fell by $2.7 billion, and Federal Reserve policy seemed to ease. Grant's' Index of Monetary Pressure, which measures the tugs of monetary supply and demand, did ease, for the second week in a row. But prices were leaden.

Asset Odyssey

When people compare the size of banks, as they did the other day, they usually talk about assets, which are simply loans and securities. But when they mention the Federal Reserve, they talk about anything that comes into their heads.

Mega-bull

A man who lunched with Gert von der Linde, economist with Donaldson, Lufkin & Jenrette, the other day, did more writing than eating. His notes follow...

Bank credit climbs

A few years ago, when the "Tuesday" spot commodity price index had a vogue on Wall Street, the Bureau of Labor Statistics, which had been publishing it, dropped it...

Good-news deficit

A happy note: It looks like there'll be fewer bills, notes and bonds for the banks to buy. The federal deficit in December amounted to just $16.7 billion, down from $17.9 billion a year earlier...

Convert alert

Westinghouse Electric Corp., which reported a bang-up fourth quarter, and which has just raised the dividend and split the stock, disclosed plans last week to issue $200 million in convertible bonds.

Thrifts for Sale: A Cook's tour of S&L financial statements

A Cook's tour of S&L financial statements Almost everybody has to do something for a living. Lately, my chosen calling has been the reading of initial public offering circulars of thrift institutions.

Thrift footnote

It isn't the absolute level of interest rates on which the fortunes of thrifts turn, but the difference between long-term and short-term rates.

Great Moments in Interest Rates (a series)

"In 1932 [wrote Sidney Homer] short-term interest rates also resumed their decline. In that year call money declined to 1% and commercial paper to 1-1/2%. Treasury bills at 0.08% entered the wonderland of nominal yields which from time to time has been the dream of both entrepreneurs and social reformers."

January 16, 1984, Vol. 02, No. 02

Interest Rates Tumble

On Monday, the National Association of Purchasing Management signaled fair business weather with news of the 12th consecutive rise in its monthly index. But on Friday, the Commerce Department, in announcing a shockingly low December retail sales number, flashed foul.

Pictoral Loans

In the wake of Friday's bullish news, the specter of rising loan demand was one of the only specters left.

Converts

In the wake of Friday's bullish news, the specter of rising loan demand was one of the only specters left.

Tax Free Parking

Yields for short-dated, tax-exempt paper are going down, not up. When the Department of Housing and Urban Development staged its monthly auction of tax-exempt project notes two weeks ago, the yield on 12-month paper was 5.90% or so.

M-Q=M-1

Irving Fisher, who wrote the immortal equation MV=PQ, and who spoke the immortal words, "Stock prices have reached what looks like a permanent high plateau" (October 15, 1929), is the intellectual father of the Federal Reserve's experimental money supply, M-Q.

Watersheds in Contrary Opinion

The Washington Post, arbiter of taste and style, published a New Year's list of who or what is in and out.

Redemption

The ingenious placement of booby traps is part of the all-around beauty of the corporate bond market.

Inflation news

Last issue a graph traced the meteoric rise of something called the Leading Index of Inflation. The index, a product of the Center for International Business Cycle Research of the Columbia University Business School, is a barometer of future price trends.

Ancient History: Too many gods

Most voters are only just now focusing on the transition from recession to recovery. But economic theologians are already in full cry over the questionable prospects for sustained prosperity.

January 2, 1984, Vol. 02, No. 01

Credit Demands Mount

On the last Friday of the old year, bears had the better of it. The money supply and the demand for short-term business credit both rose. Bond prices fell.

1984 in detail

"The foreseeable future. A cliche and a fuzzy one. How much of the future is foreseeable? Ten minutes? Ten years? Any of it? By whom is it foreseeable? Seers? Experts? Everybody?" -- William Strunk, Jr., and E.B. White, The Elements of Style.

Minority Report

Since moderately down and then moderately up is the majority forecast for interest rates in 1984, it falls to the minority to refute it.

Lots of Money

Two men with a hunch sat down at a computer the other day. Their hunch was that the Fed is creating more credit than it usually does at this time in the business cycle, and they asked the computer for the facts. The machine obliged with a table of year-over-year growth in the adjusted monetary base...

Telex from Timbuktu

London -- Part of an investor's subconscious equipment is his (her/its) fundamental view of the world. Is it a basically certain place with uncertain events or an uncertain place with only moments of certainty?

Arbitrage

Since the world capital market is one market, it's helpful to know if American yields are high or low in relation to other yields.

Good news yield curve

For anyone without blind faith, a logical question is, "why?" Why has the economy responded so slavishly to the simple alignment of interest races over time, and is there any chance we can free ourselves from this bondage?

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